Notes Payable

9 Months Ended

Sep. 30, 2011

NOTE 9 — NOTES PAYABLE

Notes payable at September 30, 2011 consisted of the following:


	September 30, 2011
	(in thousands)
Various equipment notes payable with maturity dates April 2012 — August 2021, interest rates of 0.00% — 6.34%	$	12,851
Eureka Hunter Pipeline, LLC second lien term loan due August 16, 2018, interest rate of 12.5%		31,000
Second lien term loan due October 13, 2016, interest rate of 8% at September 30, 2011		100,000
Senior revolving credit facility due April 13, 2016, interest rate of 2.95% at September 30, 2011		70,000

	$	213,851
Less: current portion		(4,344	)

Total Long-Term Debt	$	209,507

The following table presents the approximate annual maturities of debt:


	(in thousands)
2011	$	739
2012		4,313
2013		2,813
2014		1,063
Thereafter		204,923

Total	$	213,851

Notes Payable

On April 13, 2011 the Company assumed various notes payable for equipment and a building upon the closing of the acquisition of NGAS. The notes have maturity dates ranging from September 2012 to April 2021 and bear interest rates of 0.00% to 5.875%. As of September 30, 2011, there was $6.0 million outstanding on these notes.

In connection with the Triad acquisition in February 2010, the Company assumed various notes payable for equipment which have a principal balance of $6.8 million at September 30, 2011, and are collateralized by the financed equipment.

Eureka Hunter Pipeline, LLC Second Lien Credit Agreement

On August 16, 2011, Eureka Hunter Pipeline, LLC (“Eureka”), a wholly owned subsidiary of the Company, entered into (i) a First Lien Credit Agreement (the “First Lien Agreement”) by and among Eureka and SunTrust Bank, as Administrative Agent (the “Administrative Agent”), and (ii) a Second Lien Term Loan Agreement (the “Second Lien Agreement”), by and among Eureka, PennantPark Investment Corporation (“PennantPark”) and U.S. Bank National Association, as Collateral Agent (the First Lien Agreement and the Second Lien Agreement being collectively referred to as the “Eureka Credit Agreements”).

The First Lien Agreement provides for a revolving credit facility (the “Revolver”) in an aggregate principal amount of up to $100 million (with an initial committed amount of $25 million), secured by a first lien on substantially all of the assets of Eureka. The Second Lien Agreement provides for a $50 million term loan facility (the “Term Loan ”), secured by a second lien on substantially all of the assets of Eureka. The entire $50 million Term Loan must be drawn before any portion of the Revolver can be drawn. The revolver has a maturity date of August 16, 2016, and the term loan has a maturity date of August 16, 2018. On August 16, 2011, Eureka drew down $31 million under the term loan, $21 million of which was distributed to the parent Company to repay existing corporate intercompany indebtedness. Both the Revolver and the Term Loan are non-recourse to the Company.

The terms of the First Lien Agreement provide that the Revolver may be used for (i) revolving loans, (ii) swingline loans in an aggregate amount of up to $5 million at any one time outstanding, or (iii) letters of credit in an aggregate amount of up to $5 million at any one time outstanding. The Revolver provides for a commitment fee of 0.5% per annum based on the unused portion of the commitment under the Revolver.

Borrowings under the Revolver will, at Eureka’s election, bear interest at:

	•		a base rate equal to the highest of (i) the prime lending rate announced from time to time by the Administrative Agent, (ii) the then-effective Federal Funds Rate plus 0.5% per annum, or (iii) the Adjusted LIBO Rate (as defined in the First Lien Agreement) for a one-month interest period on such day plus 1.0% per annum, plus an applicable margin ranging from 1.25% to 3.5%; or

	•		the Adjusted LIBO Rate, plus an applicable margin ranging from 2.25% to 3.5%.

Borrowings under the Term Loan will bear interest at 9.75% in cash and 2.75% of which may be paid, at the sole option of Eureka, in either shares of $0.01 par value, restricted common stock of the Company or cash.

If an event of default occurs under either the Revolver or the Term Loan, the lenders may increase the interest rate then in effect by an additional 2.0% per annum for the period that the default exists on both the Revolver and the Term Loan.

The Eureka Credit Agreements contain negative covenants that, among other things, restrict the ability of Eureka to, with certain exceptions: (1) incur indebtedness; (2) grant liens; (3) dispose of all or substantially all of its assets or enter into mergers, consolidations, or similar transactions; (4) change the nature of its business; (5) make investments, loans, or advances or guarantee obligations; (6) pay cash dividends or make certain other payments; (7) enter into transactions with affiliates; (8) enter into sale and leaseback transactions; (9) enter into hedging transactions; (10) amend its organizational documents or material agreements; or (11) make certain undisclosed capital expenditures.

The Credit Agreements also require Eureka to satisfy certain financial covenants, including maintaining:

	•		a consolidated total debt to capitalization ratio of not more than 60%;

	•		a consolidated EBITDA to consolidated interest expense ratio ranging from (i) not less than 1.0 to 1.0 for the fiscal quarter ending March 31, 2012, to (ii) (A) for the Term Loan, not less than 2.75 to 1.0 for the fiscal quarter ending December 31, 2014, and (B) for the Revolver, not less than 3.0 to 1.0 for the fiscal quarter ending December 31, 2014 (if any portion of the Revolver has been drawn);

	•		a consolidated total debt to consolidated EBITDA ratio ranging from (i) not greater than 7.0 to 1.0 for the fiscal quarter ending March 31, 2012, to (ii) (A) for the Term Loan, not greater than 4.25 to 1.0 for the fiscal quarter ending December 31, 2014, and (B) for the Revolver, not greater than 4.0 to 1.0 for the fiscal quarter ending June 30, 2014 (if any portion of the Revolver has been drawn); and

	•		a ratio of consolidated debt under the Revolver to consolidated EBITDA of (i) for the Term Loan, not greater than 3.5 to 1.0, and (ii) for the Revolver, if any portion of the Revolver has been drawn, not greater than (A) 3.5 to 1.0 for the fiscal quarters ending March 31, 2012 and June 30, 2012, and (B) 3.25 to 1.0 for each fiscal quarter thereafter.

The obligations of Eureka under both the Revolver and the Term Loan may be accelerated upon the occurrence of an Event of Default (as such term is defined in each of the Credit Agreements) under either Credit Agreement. Events of Default include customary events for these types of financings, including, among others, payment defaults, defaults in the performance of affirmative or negative covenants, the inaccuracy of representations or warranties, defaults under the Term Loan (with respect to the Revolver) or the Revolver (with respect to the Term Loan), defaults relating to judgments, material defaults under certain material contracts of Eureka, and defaults by the Company which cause the acceleration of the Company’s debt under its existing senior secured revolving credit facility administered by the Bank of Montreal.

In connection with the Credit Agreements, (i) Eureka and its existing subsidiary, entered into customary ancillary agreements and arrangements, which provide that the obligations of Eureka under the Credit Agreement are secured by substantially all of the assets of Eureka and such subsidiary, consisting primarily of pipelines, pipeline rights-of-way, and a gas processing plant, and (ii) Triad Hunter, LLC, the sole parent of Eureka and a wholly owned subsidiary of the Company, entered into customary ancillary agreements and arrangements, which granted the lenders under the Credit Agreements a non-recourse security interest in Triad’s equity interest in Eureka. As of September 30, 2011, there was $31 million outstanding on the Term Loan and no outstanding balance on the Revolver.

Second Lien Term Loan Credit Agreement

On September 28, 2011, the Company entered into a Second Lien Term Loan Credit Agreement (the "Second Lien Credit Agreement”) by and among the Company, Capital One, N.A., as Administrative Agent, BMO Harris Financing, Inc., as Syndication Agent, Citibank, N.A., as Documentation Agent, BMO Capital Markets Corp. and Capital One, N.A., as Joint Lead Arrangers and Bookrunners, and the lenders party thereto.

The Second Lien Credit Agreement provides for a term loan credit facility (the “Term Loan Facility”) maturing on October 13, 2016, in an aggregate principal amount of $100 million, which was fully drawn on the closing date. Amounts repaid under the Term Loan Facility may not be redrawn in the future.

Borrowings under the Term Loan Facility will, at the Company’s election, bear interest at either: (i) an alternative base rate (“ABR”) equal to the higher of (A) the Prime Rate, (B) the Federal Funds Effective Rate plus 0.5% per annum and (C) the LIBO Rate for a one month interest period in effect on such day plus 1.0%; or (ii) the Adjusted LIBO Rate, which is the rate stated on Reuters BBA Libor Rates LIBOR01, provided that such amount shall not be less than 1.0% per annum through June 30, 2012 and not less than 2.0% per annum for any period after June 30, 2012; plus in each of the cases described in clauses (i) and (ii) above, an applicable margin of 6.0% for ABR loans and 7.0% for Adjusted LIBO Rate loans for periods through June 30, 2012 and 7.0% for ABR loans and 8.0% for Adjusted LIBO Rate loans for periods after June 30, 2012.

Overdue amounts shall bear interest at a rate equal to 2.0% per annum plus the rate applicable to ABR loans.

The Company may elect to prepay amounts due under the Term Loan Facility without penalty during the first 12 months. The Company will be subject to a 2.0% penalty of the principal amount being prepaid during the second year of the Term Loan Facility and a 1.0% penalty of the principal amount being prepaid during the third year of the Term Loan Facility. Any optional prepayments made after the third year of the Term Loan Facility will not be subject to an additional prepayment premium or penalty.

The Company is subject to mandatory prepayments under the Term Loan Facility for certain percentages of the net cash proceeds received as a result of: (i) future issuances of certain debt securities, including those convertible into the Company’s common stock or other equity interests; (ii) sales or other dispositions of the Company’s property and assets subject to customary reinvestment provisions and certain other exceptions; and (iii) future issuances of the Company’s equity interests including its common stock, preferred stock and other convertible securities subject to certain exceptions.

The Second Lien Credit Agreement contains negative covenants that, among others things, restrict the ability of the Company and its restricted subsidiaries to, with certain exceptions: (1) incur indebtedness; (2) grant liens; (3) change the nature of its business; (4) dispose of its assets; (5) enter into mergers, consolidations or similar transactions; (6) make investments, loans or advances; (7) pay cash dividends, unless certain conditions are met, and subject to a “basket” of $20,000,000 per year available for payment of dividends on preferred stock; and (8) enter into transactions with affiliates.

The Second Lien Credit Agreement also requires the Company to satisfy certain financial covenants, including maintaining (1) a ratio of current assets to current liabilities of not less than (a) 0.85 to 1.0 for each fiscal quarter ending on or before March 31, 2012 and (b) 1.0 to 1.0 for each fiscal quarter ending thereafter; (2) a ratio of its Total Reserve Value (as such term is defined in the Second Lien Credit Agreement) to total indebtedness under the Credit Agreement (as defined below) and Second Lien Credit Agreement of not less than 1.5 to 1.0; (3) a ratio of EBITDAX to interest of not less than 2.125 to 1.0 commencing with the fiscal quarter ending September 30, 2011; and (4) a ratio of total debt to EBITDAX of not more than (a) 5.25 to 1.0 for the fiscal quarter ending September 30, 2011, and (b) 4.75 to 1.0 for each fiscal quarter ending thereafter.

The obligations of the Company under the Second Lien Credit Agreement may be accelerated upon the occurrence of an Event of Default (as such term is defined in the Second Lien Credit Agreement). Events of Default include customary events for a financing agreement of this type, including, without limitation, payment defaults, defaults in the performance of affirmative or negative covenants, the material inaccuracy of representations or warranties, bankruptcy or related defaults, defaults on other indebtedness of the Company, defaults relating to judgments and the occurrence of a Change in Control (as such term is defined in the Second Lien Credit Agreement), which includes instances where a third party becomes the beneficial owner of 30% or more of the Company’s outstanding equity interests.

The Company’s obligations under the Second Lien Credit Agreement have been secured by the grant of a second priority lien on substantially all of the assets of the Company and its restricted subsidiaries, including the oil and gas properties of the Company and its restricted subsidiaries.

In connection with the Second Lien Credit Agreement, the Company and its restricted subsidiaries also entered into certain customary ancillary agreements and arrangements, which, among other things, provide that the indebtedness, obligations and liabilities of the Company arising under or in connection with the Second Lien Credit Agreement are unconditionally guaranteed by such restricted subsidiaries.

Senior Credit Facility

On April 13, 2011, the Company entered into a Second Amended and Restated Credit Agreement, (the “Senior Credit Facility” or “revolving credit facility”). The Senior Credit Facility amended and restated, in its entirety, that certain Amended and Restated Credit Agreement dated February 12, 2010.

The Senior Credit Facility provides for an asset-based, senior secured revolving credit facility maturing April 13, 2016. The initial borrowing base was set at $120 million upon the completion of the Company’s acquisition of NGAS. The borrowing base was subsequently increased to $145 million upon the completion of the Company’s acquisition of NuLoch, which closed on May 3, 2011. The revolving credit facility is governed by a semi-annual borrowing base redetermination derived from the Company’s proved crude oil and natural gas reserves, and based on such redeterminations, the borrowing base may be decreased or may be increased up to a maximum commitment level of $250 million. The borrowing base is subject to such periodic redeterminations commencing November 1, 2011.

The facility may be used for loans and, subject to a $10,000,000 sublimit, letters of credit. The facility provides for a commitment fee of 0.5% based on the unused portion of the borrowing base under the facility.

Borrowings under the facility will, at the Company’s election, bear interest at either: (i) an alternate base rate (“ABR”) equal to the higher of (A) the Prime Rate, (B) the Federal Funds Effective Rate plus 0.5% per annum and (C) the LIBO Rate for a one month interest period on such day plus 1.0%; or (ii) the adjusted LIBO Rate, which is the rate stated on Reuters BBA Libor Rates LIBOR01 market for one, two, three, six or twelve months, as adjusted for statutory reserve requirements for eurocurrency liabilities, plus, in each of the cases described in clauses (i) and (ii) above, an applicable margin ranging from 1.25% to 2.75% for ABR loans and from 2.25% to 3.75% for adjusted LIBO Rate loans.

If an event of default occurs and is continuing, the lenders may increase the interest rate then in effect by an additional 2% per annum plus the rate applicable to ABR loans.

The Senior Credit Facility contains negative covenants that, among other things, restrict the ability of the Company to, with certain exceptions: (1) incur indebtedness; (2) grant liens; (3) make certain payments; (4) change the nature of its business; (5) dispose of all or substantially all of its assets or enter into mergers, consolidations or similar transactions; (6) make investments, loans or advances; (7) pay cash dividends, unless certain conditions are met, and subject to a “basket” of $20,000,000 per year available for payment of dividends on preferred stock; and (8) enter into transactions with affiliates. The Second Restated Credit Agreement also requires the Company to satisfy certain financial covenants, including maintaining (1) a ratio of consolidated current assets to consolidated current liabilities of not less than 1.0 to 1.0; (2) a ratio of EBITDAX to interest of not less than 2.5 to 1.0; and (3) a ratio of total debt to EBITDAX of not more than (a) 4.5 to 1.0 for the fiscal quarters ending June 30, 2011 and September 30, 2011 and (b) 4.0 to 1.0 for each fiscal quarter ending thereafter. The Company is also required to enter into certain commodity hedging agreements pursuant to the terms of the facility which is satisfied at September 30, 2011.

The obligations of the Company under the facility may be accelerated upon the occurrence of an event of default. Events of default include customary events for a financing agreement of this type, including, without limitation, payment defaults, defaults in the performance of affirmative or negative covenants, the inaccuracy of representations or warranties, bankruptcy or related defaults, defaults relating to judgments and the occurrence of a change in control.

Subject to certain permitted liens, the Company’s obligations under the Senior Credit Facility have been secured by the grant of a first priority lien on no less than 80% of the value of the proved oil and gas properties of the Company and its subsidiaries, which liens include those properties acquired through the acquisition of NGAS, and additional liens were granted on the properties acquired upon the closing of the NuLoch acquisition.

In connection with the facility, the Company and certain of its subsidiaries also entered into certain customary ancillary agreements and arrangements, which, among other things, provide that the indebtedness, obligations and liabilities of the Company arising under or in connection with the facility are unconditionally guaranteed by such subsidiaries.

On July 13, 2011, the Company entered into the first amendment of our Senior Credit Facility to increase our borrowing base available under the facility by $25 million from $145 million to $170 million effective June 30, 2011, an increase of 17% in the borrowing base. Other amendments to the facility include the elimination of interest rate floor provisions.

On August 15, 2011, the Company entered into the Second Amendment (the “Second Amendment”) to our Senior Credit Facility, as amended.

Pursuant to the Second Amendment, the Company’s borrowing base was initially increased from $170 million to $187.5 million. The Second Amendment also modifies certain provisions restricting the Company’s ability to declare dividends on its outstanding capital stock to allow (i) for dividends payable in the form of the issuance of common or preferred stock, warrants, options or other rights or interests and (ii) for the payment of up to $500,000 to pay cash in lieu of fractional shares in connection with any stock splits or reverse stock splits.

On September 28, 2011, the Company entered into the Third Amendment (the “Third Amendment ”) to our Senior Credit Facility, as amended.

Pursuant to the Third Amendment and in connection with the Company entering into the Second Lien Credit Agreement, the Company’s borrowing base was resized to $167.5 million from $187.5 million. The Third Amendment also provides that the borrowing base shall automatically be reduced by $0.30 for each $1.00 of the principal amount of any senior unsecured notes issued by the Company in the future which proceeds are not used to repay the Term Loan Facility under the Second Lien Credit Agreement. The Third Amendment permitted the Company to enter into the Second Lien Credit Agreement and grant liens with respect thereto, and the possible future issuance of senior unsecured notes in an amount not to exceed $300 million. The Third Amendment also modified the financial covenant that currently requires the Company to maintain a ratio of consolidated current assets to consolidated current liabilities of not less than 1.0 to 1.0 by increasing such ratio to 1.05 to 1.0 if the Term Loan Facility is not repaid in full by June 30, 2012. At September 30, 2011, the Company had loans outstanding under the Senior Credit Facility of $70 million.